Open AccessTrading networks
Author(s) -
Adamic Lada,
Brunetti Celso,
Harris Jeffrey H.,
Kirilenko Andrei
Publication year - 2017
Publication title -
the econometrics journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.861
H-Index - 36
eISSN - 1368-423X
pISSN - 1368-4221
DOI - 10.1111/ectj.12090
Subject(s) - market liquidity , granger causality , econometrics , futures market , economics , volatility (finance) , financial economics , stock market , futures contract , index (typography) , pairs trade , financial market , algorithmic trading , monetary economics , finance , alternative trading system , computer science , paleontology , horse , world wide web , biology
Summary In this paper, we analyse the time series of 12,000+ networks of traders in the E‐mini S&P 500 stock index futures contract and we empirically link network variables with financial variables more commonly used to describe market conditions. We show that network variables lead trading volume, intertrade duration, effective spreads, trade imbalances and other market liquidity measures. Network variables reflect information, information asymmetry and market liquidity and significantly presage future market conditions prior to volume or liquidity measures. We also find two‐way Granger‐causality between network variables and both returns and volatility, highlighting strong feedback between market conditions and trading behaviour.